Shareholder advocacy 101

By

Nicole Sara Sivens

March 22, 2018

8 min read

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The NYSE processes almost 5 million stock sales per day – with such incredible volume moving each day, it’s easy to focus on the drive and forget about the drivers. When you own stock in a company, you are a partial owner. For long-term shareholders, there's power in that consistent ownership and it's measured in clear increments: One vote per share.

We often think the only way for investors to express opinion over a company's practices is to buy or sell their shares and a show of support or dismissal. However, when investors think like the owners they are, they’re in a unique position to make change. Everything from how many women are on the board to how much it pays its employees is up for a vote.

Every shareholder has the right to vote on corporate actions, but only those with a “meaningful” stake may present the issues to be voted on. The SEC defines that as 1% of shares, or $2,000 worth, held for at least one year prior to the submission deadline. When you present an issue to be voted on, that is called a shareholder proposal.

Shareholder proposals have long been used to divvy up the board and review compensation, but lately shareholders have been using that same influence to address climate, energy and sustainability. All these issues affect long-term performance and are finally being treated as such. With more investors than ever making choices based on how a business runs, not just performance at any cost, real progress is heading to the forefront.

The people have spoken

The most important part of shareholder advocacy? It works. Companies like Avon, Hershey, and Smucker's have been made to source 100% certified sustainable palm oil, an ingredient that is otherwise grown on plantations that ruin rainforests and animal habitats.

Case in point: One of our newest companies, AES Corp., had previously been passed on because too much of the electricity they generated came from coal, oil, and gas. However, based on recent shareholder advocacy measures, we have added them to our Renewable Energy portfolio.

Here’s what happened: Activist investor ValueAct Capital Management took a stake in power producer AES Corp., and the fund’s founder Jeffrey Ubben joined its board in an effort to push for cleaner energy resources.

Ubben is working with AES on the company’s plan to sell coal assets, reduce debt, and develop more solar power and battery storage. As a result of this, shares of AES jumped as much as 10 percent. Purpose, meet profit.

Beyond the boycott

Not just limited to change of practices, shareholder advocacy and proposals can halt them altogether. Divesting is a end-of-the-line action introduced when the owners have simply had enough. Individual boycotts are indeed a game-changer for lots of consumer facing companies, but what about the behind the scenes guys? Large groups removing all their money through divesting tends to get the message across loud and clear. This tactic has been used by institutional investors for decades, and again, it works.

For many investors, high returns simply aren’t enough. And for those investors, shareholder advocacy is their biggest tool to enact change.

How you can get involved

When you invest with Swell, you’ll get a few emails (we’re chatty!) about your holdings. Some of them are prettier than others – but don’t ignore the ugly ones! The corporate action emails look like this:

If you see a name on here that piques your interest, get in touch. Our Investor Relations team is always ready to help. We’ll get the details to you asap so that you can make a more informed decision about your holdings. If you feel compelled to take action, let us know. As your investment advisor, we’re the ones who will be in touch with Folio, our broker dealer. Simply put: We do the leg work. Just let us know what you want to do (if anything) and we’ll take it from there. We’ll keep you up to date on details like follow-up, cost, and outcome.

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